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Wednesday, 18 November 2009
Page: 8137


Senator STEPHENS (Parliamentary Secretary for Social Inclusion and Parliamentary Secretary for the Voluntary Sector) (9:31 AM) —I move:

That these bills be now read a second time.

I seek leave to have the second reading speeches incorporated in Hansard.

Leave granted.

The documents read as follows—

CARBON POLLUTION REDUCTION SCHEME BILL 2009 [NO. 2]

The need for action on climate change

The Government is committed to taking action on climate change.

We accept the consensus view of scientists that global warming is unequivocal and human activities are very likely responsible for most of the observed warming over the last fifty years.

Climate change is real and there will be serious consequences if greenhouse gas emissions are not restrained.

Australia is highly exposed to the impacts of climate change. The effects on Australia's environment - and economy - will be serious. The health of our population, the security of our water and energy supplies, and impacts on coastal communities and infrastructure all face unprecedented tests.

Acting on climate change is squarely in Australia’s national interest.

If we don't act, average temperatures across Australia are expected to rise by over 5°C (compared to 1990) by 2100. To put this in perspective, a 1°C rise in temperature risks a 15 per cent reduction in stream flow in the Murray-Darling Basin, Australia's biggest river system.

Under a worst case scenario, irrigated agriculture in the Murray-Darling Basin would virtually disappear by 2100.

Bushfires are expected to become more intense, and the interval between them will shorten. The mega fires in Victoria in 2009 and Canberra in 2003 are consistent with these expected changes in fire regimes.

The business community in Australia is calling for investment certainty so that they can commit the necessary investment to start to move the Australian economy to a low carbon future.

As Heather Ridout from the Australian Industry Group said in a speech on 15 October 2009, “Many of our members are telling us that they are holding off making investments until there is a greater degree of clarity around domestic climate change legislation.”

Coupled with the Renewable Energy Target of 20 per cent of electricity from renewable sources by 2020, the Carbon Pollution Reduction Scheme (CPRS) will drive around $19 billion in investment in renewables in the period to 2020.

This demonstrates that Australia can take action against climate change whilst continuing to grow and prosper. In fact, modelling done by the Australian Treasury shows we can create 1.7 million jobs to 2020, while reducing carbon pollution.

And from an employment perspective, all major sectors - including the coal mining sector and electricity generation overall - grow over the years to 2020, delivering substantial increases in employment from today's levels.

As the world prepares to gather in Copenhagen to strive towards an international deal, what each country does at home matters. All nations need to keep moving forward, and it is squarely in Australia’s national interest to show up at the negotiating table in Copenhagen with a plan to deliver our targets.

It maximises our chance of playing a constructive role in negotiations and sealing the deal we know the world needs, and it provides certainty that the targets we sign up for internationally will be achieved at the lowest possible overall cost.

To major developing countries, it would send the signal that Australia is serious about delivering the emissions reductions to which we have committed - and therefore encourage action from them.

For all nations, it will help build confidence that, even in one of the world’s most resource-intensive economies, we can start to reduce our emissions while continuing to grow our economy.

I would like to address at the outset some of the major arguments of those who oppose action on climate change.

It is sometimes said that because Australia is responsible for a small proportion of global greenhouse gas emissions, we should not be ‘acting ahead of the rest of the world’ by unilaterally committing to reduce our emissions - that this would impose costs on Australia without solving the global warming problem.

We are not acting ahead of the rest of the world - in fact 27 EU countries, the US, Japan, Canada, New Zealand and Korea all have, or are developing, cap and trade systems.

And there is no need to wait until after Copenhagen as there is nothing in the R4221Bill which makes its passage contingent on Copenhagen outcomes.

The CPRS establishes the framework under which Australia’s emissions reduction targets will be achieved and it has been designed for Australia’s national circumstances. The CPRS has also been designed to be sufficiently flexible to accommodate the range of possible outcomes from Copenhagen, so important details such as the scheme caps will not be set until after Copenhagen.

And finally, the Liberals have endorsed the Government’s emissions targets for 2020, including a commitment to reduce emissions by at least 5 per cent compared to 2000 levels, irrespective of commitments by other countries.

This is an ambitious commitment. It is important for the community to know how this will be achieved so that everyone - including business and households - can start down the path of reducing emissions.

So the debate over whether Australia should wait is over. In fact, it should have been over since 2007, when the Howard Government endorsed the findings of its Task Group on Emissions Trading, which recommended that the then Government announce an emissions target ahead of a post-Kyoto agreement and recommended the adoption of an emissions trading scheme to achieve those targets.

Development of the Carbon Pollution Reduction Scheme

Numerous reviews have found that an emissions trading scheme is the best and most efficient tool to achieve emissions reductions - including the former Prime Minister Howard’s Task Group on Emissions Trading and the Garnaut Review.

Both these concluded that market-based approaches that deliver a price on carbon will reduce greenhouse gases at least cost, and that an emissions trading scheme is the best market-based approach.

This is why both major political parties went to the last election committing to establish an emissions trading scheme - and why the Rudd Government has developed the Carbon Pollution Reduction Scheme.

Since the election of the Rudd Government, there has been an extensive process to develop the CPRS.

The core principles of the scheme were clearly articulated as long ago as February 2008.

The Government’s CPRS Green Paper was released for public consultation in June 2008. The Department of Climate Change undertook extensive stakeholder consultation in developing the Green Paper, including meetings and the release of 16 papers on different aspects of scheme design.

Final policy positions were set out in the CPRS White Paper, released in December 2008. In developing these policy positions, the Government considered 1026 submissions on the Green Paper, the final report of the Garnaut Climate Change Review, the results of the Australian Treasury’s comprehensive modelling exercise, feedback from meetings, workshops and one-on-one stakeholder consultation and outcomes from a number of industry workshops.

In March and April 2009, the Government released for consultation draft legislation to implement the CPRS. A number of changes were made to the legislation in light of that consultation.

From this brief history it is clear that the CPRS has been subject to a great deal of public scrutiny. It has also had a great deal of parliamentary scrutiny. Three Senate Committees considered and reported on the CPRS bills, and there was extensive Parliamentary debate on those bills between April and August of this year.

We have conducted a thorough, consultative and transparent policy process over the last two years to reach this final stage.

It is pleasing that the Coalition has now finally come forward with proposals to amend the CPRS and we are looking forward to negotiating in good faith will all parties.

I now turn to consider some of the major elements of the CPRS Bill.

Emissions-intensive trade-exposed industries

The Government recognises that the introduction of a carbon price ahead of effective international action may provide incentives for some trade exposed industries to relocate or source production offshore - so called carbon leakage.

That is why the CPRS bill provides for a program to support businesses producing internationally traded goods which face the most significant exposure to the carbon price.

The features of that program have been clearly stated by the Government.

Assistance, in the form of administrative allocations of permits, will be provided to new and existing firms engaged in emissions-intensive trade-exposed - so called EITE - activities.

Assistance will be targeted to the most emissions-intensive trade-exposed activities.  From the first year of the CPRS, highly emissions-intensive activities will have an effective rate of assistance of almost 95 per cent, and less emissions-intensive activities will have an effective rate of assistance of 66 per cent - rates of assistance endorsed by the Opposition through their support for similar arrangements under the Government’s Renewable Energy Target legislation.

Unlike the EU Scheme or the schemes proposed in the US Waxman-Markey and Kerry-Boxer bills there is no overall cap on free permit allocations. And as assistance will be directly linked to output, this means that if production doubles the allocation of permits doubles. This is important to cater for the expansion of Australian industry, and is the key reason why the Australian arrangements are more generous than the EU and proposed US schemes.

Notwithstanding the generosity of these arrangements, the design of the EITE program ensures that even these firms face the full carbon price and have the same incentives as all other industries to find opportunities to reduce their emissions. Assistance is calculated based on historical, industry baselines of greenhouse intensity and assistance reduces by 1.3 per cent per year. This ensures that the most efficient producers in an industry, and the producers that become more efficient over time, are rewarded for their efforts.

The Government is confident that its EITE program reduces the risk of carbon leakage, while promoting efficient production decisions and ensuring that all industries make a contribution to the national effort to reduce carbon emissions, without risking jobs.

In order to provide clear and detailed rules about how much assistance will be provided, the detail of activity definitions, rates of assistance and other matters will be set out in regulations.

A significant proportion of the relevant regulations have already been tabled in draft form. It is, of course, unusual that draft regulations be released for public comment ahead of the passage of legislation. The Government has taken this extra step to make available as much information as possible to parliament when considering the CPRS bills.

Coverage of the CPRS

One important design principle that the Government has adopted in developing the CPRS is breadth of coverage.

The CPRS has broad coverage, as it applies to approximately 75 per cent of Australia’s emissions.

This is consistent with the approach of former Prime Minister Howard’s Task Group on Emissions Trading, which said:

“The efficiency and fairness of a national abatement effort will be increased to the extent that all sectors contribute to greenhouse gas reductions. The broader the opportunity to identify and implement abatement opportunities, the lower will be the costs to the economy of meeting any given abatement task. In addition to achieving abatement efficiently, comprehensive coverage has an important equity dimension: it ensures the abatement task is shared broadly across sectors of the economy...”

For these reasons, any proposal to exclude or carve out sectors from the CPRS must be examined very carefully. Any benefits have to be weighed up against the increased burden on other industry sectors, the loss of opportunities for low-cost emissions reductions, and the possible loss of permit revenue to assist households.

Domestic offsets

Agriculture is not currently in the CPRS, but the Government has not ruled out including it in the future - from 2015 at the earliest.

The CPRS Bill does however provide for domestic offsets for reforestation.

This is a crediting mechanism - to encourage reductions in carbon pollution before the scheme starts, proponents of approved reforestation projects will be eligible to receive emission units for increases in carbon sequestration taking place from 1 July 2010.

These emissions units will then be available for purchase by liable entities - the large emitters and fuel suppliers - as an alternative to reducing their emissions or purchasing emissions units from other sources.

Given that there has been some discussion about including additional offsets in the CPRS, it is important to keep in mind the following points.

First, offsets should only be available for sectors that are outside the CPRS. There would be double counting if offsets are provided for abatement that would also be recognised through reductions in CPRS obligations.  

Second, offsets should count towards Australia’s international commitments. Otherwise, Australia would need to tighten its scheme cap, with a cost to industry and consumers, or purchase Kyoto units on the international market, costing taxpayers.

Third, practical issues of measurement and administration have to be considered.

Electricity Sector Adjustment Scheme

Free permits will also be issued, on a once-off basis over the first five years of the CPRS, to investors who purchased or constructed coal-fired generation assets prior to the Commonwealth Government’s announcement of its support for an emissions trading scheme.

While such a policy change could have been foreseen prior to this announcement, the Government considers it appropriate to partially recognise significant losses of asset value experienced by investors that were committed to such investments prior to a clear announcement by the Commonwealth Government of its support for such a scheme.

It is estimated that the free permits to be provided to generators will be worth approximately $3.8 billion. This assistance is focused on the most emissions-intensive generators as these generators are likely to experience the largest losses in asset value.

While individual electricity generators argue for increased assistance, what the whole electricity sector requires is certainty around the regulatory environment. It is only once they have that certainty, through the passage of these bills, that they can make the necessary investments in lower-emissions technologies.

This is another reason why we must act now.

Assistance for the Coal Sector

The Government recognises that emissions-intensive coal mines do need transitional assistance to adjust to the introduction of the Carbon Pollution Reduction Scheme.

The Government has said it will target assistance to the most gassy mines, and has on the table a $750m package to assist these mines investigate and implement abatement opportunities and ease their transition to the introduction of a carbon price.

The Government believes this formulation will allow the coal sector to play its part in emissions reductions whilst providing assistance for the mines most affected by the introduction of a carbon price.

Conclusion

Australians have made it clear they want action on climate change.

The Australian Government believes it is critical to take action on climate change now.

Business want the certainty that will allow them to invest.

And on the eve of the Copenhagen conference, the world is watching.

The time has come, after 12 years of inaction, to provide business certainty and to act on climate change.

The Government is determined to meet this challenge and make this important reform.

The Government welcomes the Opposition’s proposals and looks forward to negotiating in good faith with all parties.

It is up to the Leader of the Opposition to now show how his proposals are environmentally and fiscally credible and commit to voting on the CPRS this year.


CARBON POLLUTION REDUCTION SCHEME (CONSEQUENTIAL AMENDMENTS) BILL 2009 [NO. 2]

The Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2009 contains consequential and transitional provisions relating to the Carbon Pollution Reduction Scheme.

The Bill seeks to amend 11 Acts and one set of regulations.

National Greenhouse and Energy Reporting

The most significant amendments relate to the National Greenhouse and Energy Reporting Act 2007.

This Act provides the existing national framework for the reporting of information on greenhouse gas emissions, energy consumption and energy production. To maintain the Government’s commitment to the streamlining of reporting of greenhouse and energy data, the Act will be the starting framework for monitoring, reporting and assurance under the Carbon Pollution Reduction Scheme.

A number of changes are proposed to strengthen the Act and align it with the requirements of the Scheme, as outlined in the Government’s White Paper titled Carbon Pollution Reduction Scheme: Australia’s Low Pollution Future, which was released on 15 December 2008. Under the amendments, one report will satisfy an entity’s reporting requirements for the Scheme and current reporting requirements under the National Greenhouse and Energy Reporting Act 2007.

Coverage of synthetic greenhouse gases

The Carbon Pollution Reduction Scheme covers synthetic greenhouse gases. As some of these gases are already regulated under the Ozone Protection and Synthetic Greenhouse Gas Management Act 1989, amendments will be made to that Act to align it with the Scheme.

Establishment of the Australian Climate Change Regulatory Authority

The bill contains a number of consequential amendments relating to the establishment of the Australian Climate Change Regulatory Authority.

As well as administering the Carbon Pollution Reduction Scheme, the new Authority will take over administration of both greenhouse and energy reporting and the renewable energy target. This necessitates a number of legislative amendments to replace two existing statutory bodies - the Office of the Renewable Energy Regulator and the Greenhouse and Energy Data Officer - and transfer their functions to the Authority.

The creation of the Australian Climate Change Regulatory Authority also gives rise to a number of other consequential amendments - for example, to apply financial management and accountability requirements to the Authority.

Measures to prevent market manipulation and misconduct

Australian emissions units and eligible international emissions units are to be financial products for the purposes of the Chapter 7 of the Corporations Act 2001 and Division 2, Part 2 of the Australian Securities and Investments Commission Act 2001. The bill amends these Acts accordingly.

These amendments will provide a strong regulatory regime to reduce the risk of market manipulation and misconduct relating to emissions units. Appropriate adjustments to the regime to fit the characteristics of units and avoid unnecessary compliance costs will be made. The Government has committed to consulting further on those adjustments and recently released a discussion paper on this issue.

As required by the Corporations Agreement between the Commonwealth, States and Territories, the Ministerial Council for Corporations has been consulted about the amendments to the corporations legislation and, to the extent necessary, has approved those amendments.

Taxation treatment of emissions units

Schedule 2 of the bill amends various taxation laws to clarify the income tax and Goods and Services Tax treatment of emissions units.

The main consideration in designing the tax treatment of units is that the tax treatment should not compromise the main objectives of the Scheme. This means that tax should not influence decisions between purchasing, trading and surrendering units or alternatively reducing emissions. The preferred tax treatment will help implement the Scheme and reduce compliance and administration costs for taxpayers and the Australian Government.

For income tax, the amendments establish a rolling balance treatment of registered emissions units which is similar to that for trading stock. The result of the treatment is that the cost of a unit is deductible, with the effect of the deduction generally being deferred through the rolling balance until the sale or surrender of the unit.

The proceeds of selling a unit are assessable income with any difference in the value of units held at the beginning of an income year and at the end of that year being reflected in taxable income. Any increase in value is included in assessable income and any decrease in value allowed as a deduction.

The Bill also amends the Goods and Services Tax law. It characterises a supply of an eligible emissions unit or a Kyoto unit specifically as a supply of a personal property right and not a supply of or directly connected with real property. The amendments will promote certainty about the application of the normal GST rules to Scheme transactions.

Conclusion

The consequential amendments contained in this bill are important for the efficient and effective operation of the Carbon Pollution Reduction Scheme. The amendments seek, where possible, to streamline institutional and regulatory arrangements and minimise administrative costs with the Scheme.


AUSTRALIAN CLIMATE CHANGE REGULATORY AUTHORITY BILL 2009 [NO. 2]

This bill would establish the Australian Climate Change Regulatory Authority - a new statutory authority that would be responsible for administering the Carbon Pollution Reduction Scheme.

It is one of a package of bills to establish the Scheme.

The Authority will be responsible for auctioning and allocating emissions units, maintaining a national registry of emissions units and ensuring that firms comply with their obligations under the Scheme.

The Government’s intention is to establish an effective, efficient and independent regulator.

The Authority will be a body corporate headed by a Chair and between two and four other members. Through the Chair, it will employ Australian Public Service employees on behalf of the Commonwealth.

It will have a modern set of information-gathering, inspection and enforcement powers, conferred on it by the Carbon Pollution Reduction Scheme Bill 2009.

The Authority will be at arm’s length from Government. As with other independent regulators, the Minister will only be able to provide directions on general matters and there are limited grounds on which a member of the Authority may be removed from office.

The Authority will also be accountable. It will be required to produce 3-yearly corporate plans and annual reports, and comply with the Financial Management and Accountability Act 1997.

The Authority will take over the functions of the existing Office of the Renewable Energy Regulator and the Greenhouse and Energy Data Officer, so that a single regulatory body will have overall responsibility for administration of climate change laws. This transfer of functions is to be affected through the Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2009.

While it will have strong powers to ensure that Scheme obligations are complied with, the Authority will also have an important role in advising and assisting persons in relation to their obligations under the Scheme - something that is formally reflected in the Authority’s functions.


CARBON POLLUTION REDUCTION SCHEME (CHARGES—CUSTOMS) BILL 2009 [NO. 2]

This bill, which is part of the legislative package to establish the Carbon Pollution Reduction Scheme, is one of three technical bills which anticipate the possibility that the charge payable by a person to the Commonwealth for issue of an Australian emissions unit as the result of an auction, or for a fixed charge, is a tax within the meaning of section 55 of the Constitution.

The Commonwealth does not consider that these charges are taxes for constitutional purposes. However, the Government has taken an approach of abundant caution, with the charges bills providing safeguards in case a court reaches a different view on this question.

This bill caters for the possibility that the charges I have mentioned are, in whole or part, both a tax and a duty of customs by providing for the imposition of such a charge under this bill.


CARBON POLLUTION REDUCTION SCHEME (CHARGES—EXCISE) BILL 2009 [NO. 2]

This bill, which is part of the legislative package to establish the Carbon Pollution Reduction Scheme, is one of three technical bills which anticipate the possibility that the charge payable by a person to the Commonwealth for issue of an Australian emissions unit as the result of an auction, or for a fixed charge, is a tax within the meaning of section 55 of the Constitution.

The Commonwealth does not consider that these charges are taxes for constitutional purposes. However, the Government has taken an approach of abundant caution, with the charges bills providing safeguards in case a court reaches a different view on this question.

This bill caters for the possibility that the charges I have mentioned are, in whole or part, both a tax and a duty of excise by providing for the imposition of such a charge under this bill.


CARBON POLLUTION REDUCTION SCHEME (CHARGES—GENERAL) BILL 2009 [NO. 2]

This bill, which is part of the legislative package to establish the Carbon Pollution Reduction Scheme, is one of three technical bills which anticipate the possibility that the charge payable by a person to the Commonwealth for issue of an Australian emissions unit as the result of an auction, or for a fixed charge, is a tax within the meaning of section 55 of the Constitution.

The Commonwealth does not consider that these charges are taxes for constitutional purposes. However, the Government has taken an approach of abundant caution, with the charges bills providing safeguards in case a court reaches a different view on this question.

This bill caters for the possibility that the charges I have mentioned are, in whole or part, a tax. In those circumstances, this bill imposes the charge, but only to the extent the charge is neither a duty of customs nor a duty of excise.


CARBON POLLUTION REDUCTION SCHEME (CPRS FUEL CREDITS) BILL 2009 [NO. 2]

This bill seeks to establish in legislation the ‘CPRS fuel credit’ measure. It will provide transitional assistance to eligible industries and fuels that will not benefit from the cent-for-cent fuel tax reduction made under the Excise Tariff Amendment (Carbon Pollution Reduction Scheme) Bill 2009.

The CPRS fuel credit will offset the increase in eligible fuel prices by an amount equal to the reduction in the fuel tax rate. CPRS fuel credit amounts will be adjusted automatically with adjustments to the fuel tax made under the Excise Tariff Amendment (Carbon Pollution Reduction Scheme) Bill 2009.

The CPRS fuel credit program will give transitional assistance to the agriculture (excluding forestry) and fishing industries for the period 1 July 2011 to 30 June 2014. For the period the Government has fixed the emissions unit charge at $10 per tonne, based on current taxation arrangements, this credit will equal 2.455 cents per litre.

Activities incidental to the agriculture and fishing industries currently receive 50 per cent of the fuel tax credit under the Fuel Tax Act until 30 June 2012 after which they will be entitled to a full fuel tax credit. As these incidental activities will therefore receive a partial benefit from the reduction in fuel tax until 30 June 2012, they will be entitled to a partial CPRS fuel credit until that date. This CPRS fuel credit will be 50 per cent of the full CPRS fuel credit while the reduced fuel tax credit rate applies, and the full CPRS fuel credit thereafter until 30 June 2014.

CPRS fuel credits will also provide transitional assistance to heavy on-road transport users for the period 1 July 2011 to 30 June 2012. The industry will be entitled to a CPRS fuel credit of 2.455 cents per litre based on current taxation arrangements and the introduction of an emissions unit charge fixed at $10 per tonne.

Liquid petroleum gas (LPG), liquid natural gas (LNG) and compressed natural gas (CNG) are alternative transport fuels and will face a Carbon Pollution Reduction Scheme emissions unit obligation. However, as LPG, LNG and CNG are currently outside the fuel excise system they will not benefit from the fuel tax reductions applying to other fuels. The CPRS fuel credit program will therefore be extended to these fuels.

To be eligible for a CPRS fuel credit for the supply of gaseous fuels, an entity must be the liable entity for that fuel under the Carbon Pollution Reduction Scheme Bill 2009.

Suppliers will benefit from a CPRS fuel credit for differing transitional periods depending on the fuel.

The CPRS fuel credit will be provided to LPG suppliers for the period 1 July 2011 to 30 June 2014 as it is predominantly used for private motoring as an alternative to petrol.

The CPRS fuel credit will be provided to LNG and CNG suppliers for the period 1 July 2011 to 30 June 2012. This treatment is the same as for heavy on-road transport as LNG and CNG are predominantly used for this purpose.

The Government will review these measures upon their conclusion.

As the volume of emissions from these fuels is substantially lower than the volume from petrol and diesel, the Australian emissions unit auction charge impact on them will be lower. To reflect this, these fuels will receive less than the full amount of the CPRS fuel credit.

From 1 July 2011, based on current taxation arrangements and the introduction of the emissions unit charge fixed at $10 per tonne for one year, CNG will receive a CPRS fuel credit of 1.91 cents per litre which is 78 per cent of the full credit, LNG will receive a credit of 1.23 cents per litre which is 50 per cent of the full CPRS fuel credit. LPG, which has the three year assistance period, will receive a credit of 1.64 cents per litre, which is 67 per cent on the full CPRS fuel credit, for the first year after which the credit will be adjusted in accordance with increases in the emissions unit charge.

The CPRS fuel credit program will be administered by the Australian Taxation Office and claims will be made in the Business Activity Statement in the same manner as fuel tax credits.

Full details of the Carbon Pollution Reduction Scheme (CPRS Fuel Credits) Bill 2009 are contained in the Explanatory Memorandum.


CARBON POLLUTION REDUCTION SCHEME (CPRS FUEL CREDITS) (CONSEQUENTIAL AMENDMENTS) BILL 2009 [NO. 2]

The Carbon Pollution Reduction Scheme (CPRS Fuel Credits) (Consequential Amendments) Bill 2009 [No. 2] will legislate amendments to the Fuel Tax Act 2006 (‘the Fuel Tax Act’), the Income Tax Assessment Act 1997 and the Taxation Administration Act 1953 necessitated by the introduction of the CPRS Fuel Credits Bill and the administrative arrangements announced by the Government.

The measures in the CPRS Fuel Credits (Consequential Amendments) Bill are mechanical in nature. For example the existing formula in the Fuel Tax Act for determining the net fuel amount, which is the amount either owed to the Commissioner of the Commissioner owes, is being replaced. The new formula includes the CPRS fuel credit and increasing or decreasing adjustments for CPRS fuel credits.

Full details of the Carbon Pollution Reduction Scheme (CPRS Fuel Credits) (Consequential Amendments) Bill 2009 are contained in the Explanatory Memorandum.


EXCISE TARIFF AMENDMENT (CARBON POLLUTION REDUCTION SCHEME) BILL 2009 [NO. 2]

This bill seeks to amend the Excise Tariff Act 1921 to confirm in legislation the Government’s commitment in the Carbon Pollution Reduction Scheme: Australia’s Low Pollution Future White Paper. The Government will cut fuel taxes on a ‘cent for cent’ basis to offset the initial price impact on fuel of introducing the Carbon Pollution Reduction Scheme.

The Government recognises that people have limited flexibility to respond quickly to changes in fuel prices but that, over time, transport choices can respond to price changes.

To give households and businesses time to adjust to the Scheme, this legislation introduces a mechanism to automatically adjust the rate of fuel tax on all fuels that are currently subject to the 38.143 cents per litre rate of excise.

Fuel tax consists of excise duty on domestically manufactured fuels and excise-equivalent customs duty on imported fuels. Fuel tax is predominantly applied at a rate of 38.143 cents per litre across the range of fuels including petrol, diesel, kerosene, fuel oil, heating oil, biodiesel and fuel ethanol.

Different fuels emit different amounts of carbon when they burn and their prices will increase according to the volume of their emissions. To minimise compliance costs, the fuel tax cut will be made ‘across the board’ to currently taxed fuels. The fuel excise adjustment will be based on the expected rise in the price of diesel resulting from the introduction of the Scheme. This will ensure there is ‘cent for cent’ assistance for diesel users.

Diesel emits more carbon than petrol on a per litre basis so the fuel tax cut will provide more than ‘cent for cent’ assistance for petrol users, which make up the majority of motorists. However, diesel use is becoming more common as fuel and vehicle standards improve. Basing the fuel tax cut on diesel will therefore ensure that the Government’s ‘cent for cent’ commitment is delivered for the most common fuels used by households.

Any reductions will take place on 1 January and 1 July of each year, to harmonise with the Business Activity Statement reporting period.

The first fuel tax reduction will occur on 1 July 2011 with the commencement of the Carbon Pollution Reduction Scheme. On 1 July 2011, based on current taxation arrangements and that the emissions unit charge will be fixed at $10 per tonne, the fuel tax will be reduced by 2.455 cents per litre to 35.688 cents per litre.

After the fixed emission unit price of $10 per tonne lapses on 30 June 2012, the need for further reductions, and the amount, will be assessed based on the average Australian emissions unit auction charge over the preceding six month period. If the average unit charge at the time of the assessment is greater than the average unit charge that formed the basis of the previous reduction, then the fuel tax rate will be further reduced. This approach will apply to adjustments that occur from 1 July 2012.

If the current average unit charge amount is less than the previous average unit charge amount then the rate of fuel tax will remain the same—the fuel tax rate will not be increased if the emissions charge has fallen.

Information on the six-month average Australian emissions unit auction charge will be published by the Australian Climate Change Regulatory Authority in accordance with section 271 of the CPRS Bill.

The final reduction will be made, if necessary, on 1 July 2014. The fuel tax rate at that date will be the ongoing rate, that is, the fuel tax rate will not revert to the 38.143 cents per litre rate. At this time the Government will review the mechanism introduced by these amendments.

The amendments to the Excise Tariff Act will commence on 1 July 2011 assuming that the Carbon Pollution Reduction Scheme commences on that date.

Full details of the Excise Tariff Amendment (Carbon Pollution Reduction Scheme) Bill 2009 are contained in the Explanatory Memorandum.


CUSTOMS TARIFF AMENDMENT (CARBON POLLUTION REDUCTION SCHEME) BILL 2009 [NO. 2]

I am introducing today a bill to amend the Customs Tariff Act 1995 to confirm in legislation the Government’s commitment in the Carbon Pollution Reduction Scheme: Australia's Low Pollution Future White Paper. The commitment is to cut fuel taxes on a ‘cent for cent’ basis to offset the initial price impact on fuel of introducing the Carbon Pollution Reduction Scheme.

This amendment will introduce a new section into the Customs Tariff Act to ensure that the reductions made to the excise rates on fuels due to the introduction of the Scheme also apply to the relevant imported products.

Where a relevant excise rate, as defined in the Excise Tariff Amendment (Carbon Pollution Reduction Scheme) Bill 2009, is reduced, this amendment will substitute the same rate to the excise-equivalent customs duty rates. The substitution will apply to the subheadings in Schedules 3, 5, 6, 7 and item 50(1A) in Schedule 4 to the Customs Tariff Act.

Only the rate of excise-equivalent duty - that is, the non-ad valorem - component of the duty will be substituted.

The amendments to the Customs Tariff Act will commence on 1 July 2011 assuming the Carbon Pollution Reduction Scheme Bill 2009 commences on that date.

Full details of the Customs Tariff Amendment (Carbon Pollution Reduction Scheme) Bill 2009 are contained in the Explanatory Memorandum.


CARBON POLLUTION REDUCTION SCHEME AMENDMENT (HOUSEHOLD ASSISTANCE) BILL 2009 [NO. 2]

This bill bill delivers on the Government’s commitment to assist low and middle-income households with the expected increases in the cost of living arising from the introduction of the Carbon Pollution Reduction Scheme.

Climate change threatens Australia’s way of life and our future prosperity.

Australians want action on climate change.

That’s why the Government has moved to introduce the Carbon Pollution Reduction Scheme.

It will allow economic growth without growth in emissions.

The introduction of the Scheme will have a modest impact on the cost of living for households.

That is why the Government is providing low and middle-income households with upfront assistance to adjust to the impacts of the scheme.

Through a package of cash assistance, tax offsets and other measures, the Government will help these households maintain their standard of living while moving to a low pollution future.

This bill delivers on the Government’s commitments given in the Carbon Pollution Reduction Scheme White Paper that:

  • pensioners, seniors, carers, veterans, people with disability, the unemployed, students and other allowees will receive additional support, above indexation, to fully meet the expected overall increase in the cost of living flowing from the scheme;
  • low-income households will receive additional support, above indexation, to fully meet the expected overall increase in the cost of living flowing from the scheme; and
  • middle-income households will receive additional support, above indexation, to help meet the expected overall increase in the cost of living flowing from the scheme.

The assistance in this bill delivers on these commitments.

This bill takes account of changes to the Carbon Pollution Reduction Scheme announced on 4 May 2009 that introduces an initial $10 per tonne fixed carbon price in 2011-12 and a flexible carbon price in 2012-13. The composition of the Household Assistance package reflects this staged approach.

The Bill also takes account of other policy changes in the Budget, principally the Government’s Secure and Sustainable Pension Reform, which will affect how assistance is paid.

The Carbon Pollution Reduction Scheme will see a modest increase in the overall cost of living as we start to recognise the costs of carbon pollution in our everyday lives.

It is anticipated that the Carbon Pollution Reduction Scheme will result in increases in the cost of living of 0.4 per cent in 2011-12 and 0.8 per cent in 2012-13, resulting from an initial $10 per tonne fixed carbon price in 2011-12 and a flexible carbon price in 2012-13.

For many households, government payments only represent a share of their income. Therefore increasing payments in line with headline Consumer Price Index impacts alone will not fully restore their standard of living following the introduction of the Carbon Pollution Reduction Scheme.

To adequately compensate these households, compensation needs to go beyond the average household Consumer Price Index impact.

To ensure fairness, household composition has also been taken into account in designing the assistance.

This household assistance will be funded from the auction of carbon pollution permits. The Government has committed to use every cent raised from the introduction of the scheme and the auction of carbon pollution permits to help households and businesses adjust and move Australia to the low pollution economy of the future.

Increases to pension, benefit and allowance payments

The measures contained in this bill will increase the amount of certain social security and Veterans’ Affairs pension and allowance payments by 2.8 per cent over two years. This includes a 1 per cent increase from 1 July 2011 and a further 1.8 per cent increase on 1 July 2012, including upfront indexation.

These payment increases include the bringing forward of the expected Consumer Price Index related indexation increases that will automatically flow from the Scheme’s introduction. These indexation increases are expected to be 0.4 per cent in 2011-12 and 0.8 per cent in 2012-13. The 0.4 per cent expected indexation increase for 2011-12 will be brought forward and paid from 1 July 2011. The 0.8 per cent increase in the expected indexation increase will be brought forward and paid from 1 July 2012.

Because assistance for the cost of living increase provided through certain payments will be brought forward, subsequent indexation arrangements will be adjusted to avoid duplicate assistance.

These increases will apply to a range of income support payments including the age pension, carer payment, veteran service pensions, disability support pension, Newstart allowance, Youth Allowance, parenting payments and the special benefit. A list of affected payments is included in the bill.

Increases to family tax benefit

Similar to pension and allowance increases, family tax benefit will be increased to help low and middle-income families meet the expected overall increase in the cost of living flowing from the Carbon Pollution Reduction Scheme. The increases to family tax benefit will include the upfront payment of the expected automatic indexation increases that will flow from the scheme’s introduction. These automatic increases are expected to be 0.4 per cent in 2011-12 and 0.8 per cent in 2012-13. Subsequent indexation points for family tax benefit payments will be adjusted to avoid the duplication of assistance.

The per-child maximum standard rates of family tax benefit Part A for under 16 year olds and the family tax benefit Part A supplement will be increased by 2.8 per cent over two years, in line with changes to pensions and allowances.

Per-family standard rates of family tax benefit Part B and the Part B supplement will also be increased by 2.8 per cent over two years.

Additional increases are also being made to the base rate of family tax benefit Part A to assist recipients of these payments.

Adjustments will be made to indexation of family tax benefit Part A and Part B rates on 1 July 2012 and 1 July 2013 (and over further indexation points if necessary) to prevent duplication of the amounts brought forward on 1 July 2011 and 1 July 2012.

A new family tax benefit combined end-of-financial-year supplement will be created for families eligible for both family tax benefit Part A and Part B, where the main income earner has income above $60,000 per year. The value of the supplement will be up to $240 per family in 2011-12 and up to $680 per family in 2012-13 and later years. The supplement will phase in at four cents in the dollar when the primary earner’s income reaches $60,000 until the supplement reaches the maximum amount. The entitlement to this supplement will cease when a family’s entitlement to family tax benefit Part A or Part B ceases.

Measures delivered through the tax system

Assistance is also being provided through the tax system. These measures provide additional assistance to eligible low and middle-income households through increases to the low income tax offset and various tax offsets for taxpayers who maintain a dependant.

Low income tax offset

From 1 July 2011, the low income tax offset will increase by $150 from $1,500 to $1,650. From 1 July 2012, it will increase a further $280 to $1,930. This will increase the taxable income up to which a taxpayer is entitled to an amount of low income tax offset to $71,250 for the 2011-12 income year and to $78,250 for the 2012-13 income year and later income years.

Senior Australians tax offset

These increases in the low income tax offset will increase the income level above which senior Australians eligible for the senior Australians tax offset begin to pay tax. From 1 July 2011, eligible senior Australians will have no tax liability until their income reaches $31,474 for singles and $27,680 for each member of a couple. From 1 July 2012, eligible senior Australians will have no tax liability until their income reaches $32,948 for singles and $29,547 for each member of a couple. Adjustments will also be made to the Medicare levy thresholds for senior Australians.

Dependency tax offsets

Measures for households include assistance to eligible adults who maintain a dependant. These increases will apply to the dependent spouse offset, the child-housekeeper offset, the invalid-relative offset, the parent/parent-in-law offset and the housekeeper offset.

From 1 July 2011, these dependency offsets will increase by $60 while, from 1 July 2012, they will increase by $105. These increases will be in addition to the annual increases in these offsets that occur due to automatic indexation.

Transitional payments

A carbon pollution reduction transitional payment will be payable for each of the 2011-12 and 2012-13 income years to independent adults in low-income households who can show they have not been assisted in line with the Government’s commitments.

The amount of the carbon pollution reduction transitional payment for the 2011-12 income year will be $200 per claimant and $550 per claimant in 2013.

The carbon pollution reduction transitional payment will become payable to qualifying individuals for the first year from 1 July 2012 and will be assessed with reference to the individual’s income in the 2011-12 financial year. The person will have until 30 June 2014 to lodge a claim for the 2012 carbon pollution reduction transitional payment.

The second year of carbon pollution reduction transitional payment will be assessed with reference to the individual’s income in the 2012-13 financial year and will become payable from 1 July 2013. A person will have until 30 June 2015 to lodge a claim to receive the 2013 carbon pollution reduction transitional payment.

Interaction with pension reform legislation

The Government proposes to pay Carbon Pollution Reduction Scheme household assistance to pensioners through the new Pension Supplement, announced in the Budget as part of the pension reform package. As this supplement did not exist in law when this bill was originally drafted, several provisions that enable legislative instruments to be made were included to allow the timing discrepancy to be addressed.

However, the legislative instrument provisions are now unlikely to be used. Instead, the substantive amendments provided by the pension reform legislation to this current bill (amendments which will commence when this current bill is enacted) will reflect the structure of the new pension system following the Government’s pension reforms and pay the household assistance to pensioners via the new Pension Supplement.

More specifically, the pension reform legislation will remove the relevant powers to create legislative instruments regarding payment amounts and mechanisms for pensioners, and include these details in the primary Carbon Pollution Reduction Scheme legislation.

Conclusion

Through the measures introduced by this bill, the Government will provide upfront support to low and middle-income households to help in adjusting to a low pollution future.

The Government will update the household assistance package on the basis of any new information on the estimated carbon price before the scheme starts. Each year, the adequacy of this assistance will be reviewed in the context of the Budget.